Mumbai, NFAPost: Mukesh Ambani-owned Reliance Industries Ltd has announced hiving off of the firm’s oil-to-chemical (O2C) business into a separate new unit. This move is part of the company’s efforts to pursue growth opportunities with strategic partnerships.
In a regulatory filing, RIL stated that Oil-to-Chemicals (O2C) business reorganisation can be viewed in the context of RIL’s unprecedented growth in the last decade driven by significant growth in O2C Business and rapid scale-up of new consumer businesses – Digital and Retail.
“Reorganising refining and petrochemicals as oil-to-chemicals (O2C) reflects a new strategy as well as a management matrix. It said, will facilitate holistic and agile decision making as well as “pursue attractive opportunities for growth with strategic partnerships,” said the company in a post earning investor presentation.
According to Arvian Research, RIL decision will pave the way for one of the largest demerger or restructuring in the corporate history of India. “For a company like RIL, having the presence in diverse business which are registering stupendous growth, the demerger will necessarily bring another level of growth momentum,” states Arvian Research.
The O2C business unit holds Reliance’s oil refinery and petrochemical assets and retail fuel business but not upstream oil and gas producing fields such as KG-D6 and textiles business. It also houses the firm’s Singapore and the UK-based oil trading subsidiaries and marketing subsidiary, Reliance Industries Uruguay Petroquimica SA. It also owns Reliance Ethane Pipeline Limited.
Reliance started work on hiving off the O2C business into a separate unit last year for a possible stake sale to companies such as Saudi Aramco. It values the O2C business at $75 billion and has been in talks with Saudi Arabian Oil Co (Aramco) for sale of a 20 per cent interest.
Mukesh Ambani had in July 2019 stated that the process of spinning of O2C into a separate subsidiary would be completed by early 2021.
The company also pinpoints the rationale behind O2C business reorganisation. Besides helping in forming an independent growth company that enables the focused pursuit of opportunities across O2C value chain, the spin-off will help in achieving enhanced efficiencies through a self-sustaining capital structure and a dedicated management team.
The decision will also facilitate value creation through strategic partnerships and attract dedicated pools of investor capital. The regulatory filing also states that decision will also help all stakeholders of the company as it will bring the management control fo O2C business with RIL and the company is expected to retain its investment-grade international (BBB+/ Baa2), and domestic AAA credit ratings.
